Idea Generation for day traders

When traders day trading stocks introduce themselves to each other, they’ll often ask each other, “What type of trading do you focus on?” For example, some traders focus purely on fundamental analysis, others might focus strictly on news driven events, someone else might focus on specific technical setups. I could go on and on, hopefully you get the picture. There are several methods and approaches traders use to try to beat the market.

For the most part, nearly every trader ends up failing. It could stem from a lack of capital, time, knowledge, discipline, tools, or even a poor strategy. In general, if most people fail at day trading stocks, then do you want to be trading off the same methods they are? Of course not.

The same old strategy wont work forever

On the flip side, the more people that pile into the same strategy, the less edge there will be in the trade. If I told you that every day at this location you can go and pick upwards to $1,000, you just have to show up and put it in your pocket. In the beginning it’s amazing…after all, who doesn’t want free money?

Eventually, more people start finding out about the location, and you’ll start making less and less. It gets more competitive to a point in order to pick up the money you have to go days in advance and wait in line. Opportunity lost.

In many ways, that’s how trading is too. What worked great 10 years ago might be totally inapplicable in today’s markets. Inefficiencies disappear quickly and new ones appear. The majority of day trading stocks today is conducted by high frequency programmers, the inefficiencies are so quick to fade that most people don’t even notice them.

Idea generation is extremely important

With that said, if you want to have longevity in trading, you have to be willing to adapt. Milk a trade/strategy for as long as you can, but always work on developing new ones. Idea generation is extremely important in trading, if you don’t work on it consistently, then prepared to be extinct.

How do you develop new ideas when day trading stocks?

One way to do this is by observing some of the highlights and lowlights of the day. For example, let’s say a certain stock gained 50% in one day. Imagine being long that from the previous day’s close, pretty sweet right?

Well, start digging and try to find answers. Why did the stock price rise that much? Was there news/rumours, was it based off an event like earnings, a short squeeze… or whatever. Patterns do repeat themselves in the stock market, search for patterns that might explain why a certain stock had the type of move it did.

You can back-test and forward test your idea to see if there is any validity in your method. Just be observant and record anything that you feel would have been great trades if you got involved with them.

Markets are dynamic, be aware of your strategies, pay attention and track their performance. Eventually things will stop working or be less efficient. Don’t be stubborn, but be willing to learn, and always try to work on new ideas when day trading stocks.